So you’re looking to purchase a new home and contemplating on whether or not it makes sense to buy an unfinished home to save money. An unfinished home is a great way to get into a new house and save dollars. Buying an unfinished home can lower your initial investment and keep the monthly mortgage payment lower. In addition, you might be able to buy an unfinished home with a larger foundation size, such that someday when you finish the home, you’ve gone from a “starter home,” to a large highly sought after custom home.
Starting Out and Saving Money
Typically an unfinished starter home (e.g. Colonial/Gambrel/Cape of around 24×36 or 26×36) means that the upstairs is unfinished. Something important to think about is how unfinished and how much sweat equity you are willing to put into it. Some unfinished homes have only the upstairs was a framed center bearing wall to support the roof trusses. Others have included all of the rough framing, electric and plumbing. Not finishing the upstairs will save you around 15%-20% of the finished cost of the entire home. For example, a normally finished home of $200,000 would cost you around $160, 000 to $170,000 unfinished (upstairs typically not completed).
If the homes you are considering have attached garages planned for them, you could possibly save another $25-30K if you were to forgo the garage. Also, if there is an attached family room planned, you may achieve similar savings as the garage by forgoing it as well.
When builders get a piece of property to build a home on, they often want to do everything possible to make as much money on their investment as they can. So you might get them to accept some of your money saving ideas but probably not all of them.
Financing Your Unfinished Home
Assuming you get a mortgage, they will want to make sure the unfinished home is livable and up to local building codes. Thus the downstairs will probably need to have a room that can serve as a bedroom (with a door and closet). This means your future dining room, den or living room may need to be designed and built to support a closet and door that they may not have otherwise had.
The banks will frown upon unfinished homes that they may have trouble selling/auctioning if you were to default. Typically the downstairs rooms will need to have flooring installed, trim installed, etc. This will also hold true for landscaping. You may be able to save a little money on landscaping, but the builder will probably need to satisfy the bank with at least spreading some topsoil and grass around a 50 foot radius of the home.
Buying an unfinished home is a great way to enter into the housing market and to get a piece of the American Dream. It allows the potential buyer to grow into the home as their family and financial resources do so. Buying an unfinished home can be a great way to save money, but also a dangerous way to overspend when building. Talk with your builder, realtor, and significant other about the options you may have for buying a home unfinished and make sure that it’s in the financial stars of your future.